Private equity bosses made a stern defence of their right to lucrative tax breaks yesterday and insisted their industry was a force for good that created jobs for the British economy.

A lineup of private equity’s top bosses, including Damon Buffini, the founder of Permira, said that it was ludicrous to suggest that they were “asset-strippers” and dismissed concerns that the high levels of debt they use for acquisitions posed any risk to the economy. Their comments to the Commons Treasury Committee came as the Bank of England’s Governor last night issued a renewed warning over cavalier corporate borrowing practices, sounding the alarm over “excessive leverage” and the growing use of “covenant-lite” loans that lack traditional conditions.

In a toughly worded message to both lending institutions and their borrowers, Mervyn King urged greater caution.

“Excessive leverage is the common theme of many financial crises of the past. Are we really so much cleverer than the financiers of the past?” the Governor asked in his annual address to City bankers at the Mansion House.

However, Robert Easton, a partner at the American buyout giant Carlyle, insisted that covenant-lite loans were good for companies because they protected them from going under if market conditions worsened. “They simply mean that the company will be able to ride through a downturn,” he told the committee.

Private equity firms typically pay for their acquisitions using 70 per cent debt, with the rest being paid in the form of equity. With interest rates at historic lows, banks have been tripping over themselves to lend, pushing up purchase prices, Philip Yea, chief executive of 3i Group plc, said.

Dominic Murphy, a partner at Kohlberg Kravis Roberts, which recently acquired Alliance Boots for £11.1 billion in Europe’s biggest leveraged buyout to date, said that in the past it was common to use 90 per cent debt for acquisitions. “So the fact we’re now putting in 30 per cent equity is not excessive . . . there’s nothing wrong with that.” he said.

The executives were speaking at the second hearing of the Treasury Select Committee’s investigation into the private equity industry.

Trade unions have accused the cash-rich American and British buyout groups of being asset-strippers that snap up companies on the cheap, slash thousands of jobs, then make off with all the profits.

“Private equity is a force for good,” Mr Murphy insisted. In recent weeks, the criticism has reached fever pitch as details of private equity’s tax status has begun to unfold. Rather than paying 40 per cent income tax, many of them pay 10 per cent or less because the bulk of their profits are generated as capital gains on their investments, which are not taxed as normal income and are subject to taper relief.

Gordon Brown has said that he is reviewing the position and Tony Blair, responding to a question in Parliament yesterday, said that the outcome of the review would be disclosed in the PreBudget Report in November.

Responding to MPs’ questions yesterday, the private equity chiefs said that they welcomed Mr Brown’s review, but a defiant Mr Murphy added: “I see nothing in the legislation that says taper relief shouldn’t be used by private equity.”

However, there were guffaws when none of the executives could say exactly how much capital gains tax their firms paid. John McFall, the committee chairman, said: “You’re the masters of the universe and I’m asking you how much capital gains tax you pay and you can’t tell me? I find that amazing.”

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